Company X wishes to borrow U.S. dollars at a fixed rate of interest. Company Y wishes to borrow Japanese yen at a fixed rate of interest. The amounts required by the two companies are roughly the same at the current exchange rate. The companies have been quoted the following interest rates, which have been adjusted for the impact of taxes:

Design a swap that will net a bank, acting as intermediary, 50 basis points per annum.
Make the swap equally attractive to the two companies and ensure that all foreign exchange risk is assumed by the bank.

Transcribed Image Text:

Company X Company Y Yen 5.0% 6.5% Dollars 9.6% 10.0%